Staff memo opportunity to participate in sandia livermore valley open campus project

STAFF MEMO To: i-GATE Development Corporation Board of Directors From: Brandon Cardwell Date: July 26th, 2016 Subject: Opportunity to participate in Sandia Livermore Valley Open Campus Project

Summary Sandia National Laboratories is developing a project on the Livermore Valley Open Campus called CREATE: Collaboration in Research and Engineering for Advanced Technology Education. According to Sandia, “CREATE will house new and expanded programs in areas that allow mutually beneficial connections and will enhance cross-cutting capabilities between national security mission ST&E and external partners including: • Hydrogen science and technology • Cybersecurity • Additive manufacturing • Translational bioscience • Transportation energy • Nuclear energy” If approved the facility will be designed, financed, constructed, and operated by The University Financing Foundation (TUFF), a non-profit developer of research and educational facilities, whom Sandia selected from a competitive process earlier this year.

During the proposal development for CREATE, TUFF and Sandia identified that including the i-GATE Development Corporation as a partner in the project would create several advantages with respect to the mechanics of the development project and the ability to activate an entrepreneurial ecosystem around the new facility.

Specifically, Sandia is requesting that i-GATE lease the entire CREATE facility from TUFF, and then sublease the entirety of the space back to Sandia in an agreement with identical terms as the original lease.

Recommendation Staff recommends the board receive a presentation from the Sandia LVOC/CREATE team and discuss potential risks and opportunities associated with i-GATE’s participation in the project.

If the board determines the project is worth exploring further, staff recommends the board authorize the executive director to enter into discussions with Sandia to identify suitable terms for an agreement which will be brought back to the board this fall.

Background i-GATE Development Corporation The articles of incorporation for the i-GATE Development Corporation state the following: The specific purposes of this corporation are to foster public-private partnerships for the development of technology-based research facilities to create positive social impact in the Tri-Valley California region, supporting new science and technology companies to develop green transportation and clean energy technologies through: encouraging science and technology businesses, educational institutions, research organizations, and industry to remain, locate, and develop in the Livermore, California region to otherwise promote the orderly economic growth and common economic interests of California As demonstrated by the articles, the original intention of establishing the i-GATE Development Corporation was to create a vehicle that could facilitate the development of research and academic facilities. Additionally, nothing in the bylaws prevents i-GATE from entering into a lease agreement of this nature.

Livermore Valley Open Campus (LVOC) and CREATE The LVOC, a joint initiative between LLNL and Sandia National Laboratories California site, seeks to develop over 100 acres of land spanning the eastern portions of both campuses. The development is intended to house a combination of laboratory program functions – additive manufacturing, renewable energy, high-performance computing, cybersecurity, and more – and outside collaborators such as universities, corporate partners, and visiting researchers.

The LVOC is not a “business park” in that the ability to locate on the campus will be predicated upon having an active engagement with one or both of the national laboratories. Though not explicitly called out in the articles of incorporation, the nascent LVOC was a key driver in the decision to create a development corporation at the time of i-GATE’s inception.

Discussion Development Strategy and Lease Terms Sandia and LLNL both currently have LVOC projects in the review and approval process: a new High-Performance Computing Innovation Center for LLNL, and the CREATE project for Sandia.

Both projects are pursuing an “Alternative Finance” development strategy, in which a third party entity 1) receives a long-term ground lease from the National Nuclear Security Administration, 2) finances, constructs, and operates the building, and 3) leases the facility back to the lab.

In the case of the CREATE project, TUFF is the third party. However, TUFF’s non-profit determination requires that the organization only enter into leasing agreements with other nonprofit organizations. Sandia Corporation, the Management and Operating contractor for Sandia National Laboratories, is a for-profit corporation, which introduces structural challenges and increased costs into the CREATE project that Sandia believes can be alleviated by partnering with i-GATE. In order to facilitate the partnership with i-GATE, Sandia has committed to

reimburse i-GATE for all expenses associated with the execution of the agreements, e.g. costs for legal review, tax consultation, other outside services, etc.

The structure that Sandia is suggesting for the relationship between it, i-GATE, and TUFF is illustrated in Figure 1.

Fig. 1

Sandia and TUFF believe that i-GATE entering into a master lease agreement directly with TUFF will satisfy TUFF’s non-profit requirement, and that the sublease between i-GATE and Sandia can be structured to practically eliminate all risk and responsibility for i-GATE. In order to accomplish this, the terms of any agreements to which i-GATE is party will need to be structured so that iGATE’s responsibilities as a lessee are directly linked to the sublease agreement with Sandia. In other words, the lease between TUFF and i-GATE should remain in place if and only if the sublease between i-GATE and Sandia is effect.

Program Support In addition to the financial advantages i-GATE can provide to the project, Sandia is keenly interested in i-GATE’s ability to help connect CREATE to the broader Tri-Valley and Bay Area innovation ecosystem. Depending on the availability of resources, i-GATE could be well positioned to serve as a “front door” to the Tri-Valley for the outside collaborators at CREATE, as well as to support the creation and growth of spinout companies.

In order to support this effort, Sandia has committed to providing an additional $10,000 per year of financial support for i-GATE, over and above their current financial commitment of $10,000-15,000 per year. This amount on its own is not sufficient to dedicate a staff resource to the effort, but when pooled with funds from LLNL and i-GATE’s municipal partners, a position could be created to plan and execute events and programs for the national labs and the TriValley startup community at large. It is important to note that this position would likely never be able generate enough recurring revenue to pay for itself, and so would indefinitely require some level of funding contributions from a collection of i-GATE partners.

If the board decides to explore this partnership further, staff will work to ensure that the terms of any agreement will sufficiently protect i-GATE from undue risk, and that any programmatic commitments desired by Sandia are reasonable and achievable.